Posted: September 16th, 2017

You have been hired as a consultant to advise on how to present the tax differences between books and tax returns on the balance sheet of RFH company

You have been hired as a consultant to advise on how to present the tax differences between books and tax returns on the balance sheet of RFH company. There are a few questionable items which the current controller Mary Sims is confused as to proper presentation. The timing differences are 
1) $1,5000,000 as a result of depreciation timing difference (books S-L versus MACRS tax return). 
2) There also was a bad debt reserve increase from the prior year of $250,000. 
RFH Company is a manufacturing company who accrued $300,000 in warranty liability at year-end and could not deduct it on the tax return for this year but warranty will be paid out in the following year. A lawsuit in the amount of $450,000 was accrued on the books at year-end awaiting the final legal court judgment. Prior court cases have ruled that this $500,000 can be paid evenly over 3 years. You have to write a memo to Mary Sims advising her how to classify these temporary tax differences on her books at year-end. In your memo give FASB sources for her that validates your balance sheet presentation.